Portugal’s EU loan interest depends on timing: source

BRUSSELS (Reuters) – The interest rate on EU loans for Portugal will depend on when the euro zone’s bailout fund, the European Financial Stability Facility (EFSF), has to borrow on the markets, an EU source said.

The money for Portugal will come from the EU as well as the International Monetary Fund (IMF) in the usual proportion of two thirds from the EU and one third from the IMF, the source said.

Portuguese Prime Minister Jose Socrates said earlier on Wednesday that his country would ask the European Union for financial help after Lisbon’s borrowing costs rocketed to unsustainable levels after the collapse of the government.

Euro zone leaders decided on March 11 that the interest charged by the EFSF on its loans to distressed sovereigns should be lower than market rates plus 300 basis points for loans of up to 3 years, or 400 basis points for longer loans, plus a 50-basis-points one-off fee.

While the new interest rate has not yet been spelled out, euro zone sources have told Reuters that it is likely to be the same as for the future European Stability Mechanism — funding costs, plus 200 or 300 basis points depending on the maturity.

The new EFSF interest rate is likely to be finally detailed and approved by June.

“The interest rate on the Portuguese loans will depend on what is legally binding at the moment of issuance, the EU source said. “If EFSF loan is made very soon, it will be on the old conditions,” the source said.

The European Commission has not yet received a formal request for aid from Portugal, the source said. As soon as it does it will be able to dispatch a mission to Portugal to determine the details of the program.

While the exact size of the bailout has yet to be established, an earlier estimate of between 60 and 80 billion euros reasonably reflected its order of magnitude, a senior euro zone source said.

(Reporting by Jan Strupczewski; Editing by Louise Ireland)

Portugal’s EU loan interest depends on timing: source